Hope for coconut farmers: What the President can do

(Part 2)

The 3.5 million coconut farmers all over the Philippines can benefit significantly if the Lionheart Farms model can be replicated all over the Philippines in those 62 provinces growing this crop that has so much potential for product diversification.

If there are large corporate groups that are now considering getting into palm oil production, especially in Mindanao, there is even more reason for those contemplating large-scale corporate farming to invest in coconuts to take advantage of the growing demand worldwide for the numerous food products that can be manufactured from this crop such as coconut water, coconut milk, coconut sugar, organic shredded coconut, virgin coconut oil (VCO), coco jam, and many others, not to mention the non-food derivatives like coconut charcoal, coir, and husks for biothermal uses.

A few other models of small coconut farmers being organized by a large corporate enterprise to grow coconuts and process them into high-value food products are Cardinal Agri Products in Brookes Point, Palawan, not far from Lionheart Farms, and Axelum Resources Corp. in Medina, Misamis Oriental. These two agribusiness enterprises coming out with high-value food products from coconut have differing ways of working with small coconut farmers. The ultimate result is that they are able to consolidate the products of thousands of small farmers and help them improve productivity at the farm level and transform their coconuts into different food items that fetch more value than copra or coconut oil.

An example of a high-value product is Axelum’s Fiesta Coconut Cream, the thick creamy white liquid extracted from fresh and finely selected coconuts, which is then UHT-processed to preserve the freshness and natural flavor of newly squeezed coconut milk. It is packed in 25-liter aseptic bags in a carton and 200-liter aseptic bags in a drum. It comes on two variants: stabilized and stabilizer-free, to address the needs of food manufacturers such as those in the beverage, ice cream and frozen dessert sectors.

Unfortunately, the examples of Lionheart Farm, Axelum, and Cardinal Agri Products are exceptions to the rule. Attempts to consolidate small holdings into larger units have been hampered by so much red tape and bureaucracy, especially from the Department of Agrarian Reform that seems to be oblivious of the fact that the CARP (Comprehensive Agrarian Reform Program) Law already expired more than eight years ago.

There is still the compulsion to continue fragmenting lands rather than facilitating their consolidations to help attain economies of scale, especially in the coconut industry.

In this regard, let me summarize again the findings and conclusion of a doctoral dissertation that was presented to the University of Navarre a few years back by Dr. Ramon de Vera, an accomplished agribusiness entrepreneur and banker. In his thesis, he analyzed the reasons for the failure of the CARP to improve the lot of small farmers. Dr. De Vera was deeply involved in Mindanao, in corporate farming of such products as bananas and pineapples, where the Philippines became one of the largest exporters of these fruits in the ASEAN. He was very familiar with successful farming systems in such high-value crops as bananas, pineapples, and sugar in large plantations around Davao and Bukidnon, among others.

In his thesis, Dr. De Vera demonstrated that effective and profitable farming often requires some economy of scale that will also allow for comparatively smaller investments in community infrastructure, such as housing, schools, clinics, power and water, and leisure parks. He especially cites the outstanding examples in Malaysia of the Federal Land Development Authority (FELDA) which developed more than 800,000 hectares of community plantation with farmers who attained higher standards of living in record time. FELDA as a business enterprise was so profitable that it used to be the third largest IPO listed company in the world, next only at some point in the past to Alibaba and Facebook. A similar initiative called the Federal Land Consolidation and Rehabilitation Authority (FELCRA) grouped together small Malaysian farmers and established community farming centers, focusing on productivity that, in turn, resulted in higher levels of farmers’ incomes. In fact, during the peak of the FELDA/FELCRA implementation during the leadership of former Prime Minister Mahathir, Malaysia reduced its rural poverty from 62% to 11%.

Here we have a clue to how we can attain a 9% poverty incidence by the end of the present Administration, as targeted by the National Economic and Development Authority (NEDA). Today, Malaysia’s poverty incidence is close to zero percent, thanks to an optimum combination of industrialization and rural/agricultural development which was attained, among other factors, by land consolidation.

Learning from the experiences of the two Southeast Asian countries most successful in reducing rural poverty — Malaysia and Thailand — Dr. De Vera came out with the following very relevant recommendations, borne out of both his research and professional experience as an agribusiness entrepreneur:

1. Create incentives for investments and loans into agribusiness. Now that Foreign Direct Investments have been significantly liberalized through the amendment of the Public Service Act and the Foreign Investments Law, there should be a concerted effort to replicate the success story of Lionheart Farms that is owned and operated by a foreign business man.

It is fortunate at this time that the President is also the Secretary of Agriculture. He can focus much of his effort to attract foreign investors to large-scale investments in agribusiness, replicating our success stories with the likes of Del Monte and Dole in the past. Actually, I find it providential that the President chose to be Secretary of Agriculture. Increasing agricultural productivity requires very close coordination among several government departments like the Department of Agriculture, (DA) the Department of Agrarian Reform (DAR), the Department of Environment and Natural Resources (DENR), and the Department of the Interior and Local Government (DILG). More often than not, these departments act as islands and have very little coordination with their respective policies and programs.

The big challenge of farm consolidation needed for us to follow the example of Malaysia cited above would need the close cooperation among those departments. The DA will identify the crops in which economies of scale are indispensable for high farm productivity, such as coconut, palm oil, mangoes, sugar, cacao, coffee, avocado, and many other high-value fruit trees. The DAR will have to make sure that its policies do not go against the ease of consolidating small farms. The DENR will be needed to identify public lands that can be leased to foreign direct investors who may want to be the government’s partner in implementing the FELDA solution to grow certain crops using the nucleus estate approach that worked so well in palm oil and rubber in Malaysia.

Only the President can wield the necessary executive power to put these agencies together, to find ways and means of removing the many legal and administrative obstacles that are standing in the way of farm consolidation.

In my opinion, the President should continue to be Secretary of Agriculture for as long as necessary for him to shepherd these different departments to have a united approach towards tackling the key problem of reaching economies of scale to increase agricultural productivity. In fact, as an extreme measure, he may even consider abolishing the DAR and assigning to a division of the Agriculture department the responsibility of helping the farmer beneficiaries make certain decisions towards farm consolidation, whether by forming cooperatives or being part of a nucleus estate approach.

(To be continued.)

Bernardo M. Villegas has a Ph.D. in Economics from Harvard, is professor emeritus at the University of Asia and the Pacific, and a visiting professor at the IESE Business School in Barcelona, Spain. He was a member of the 1986 Constitutional Commission.